Towards a Less-cash Economy

One of the discourses during demonetisation was the focus of the government towards a less-cash economy; the growth of m-wallet is a positive trend towards achieving the goal

In India, mobile wallet (m-wallet) has emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly with the aim of making India a less cash economy. One of the major driving factors of the Indian m-wallet market is the upward trend in the usage of mobile Internet. Also, demonetisation in India has proved a lucrative opportunity for m-wallet players in the country. The m-wallet companies are flooded with millions of transactions and double the number of user.

Indian m-wallet market in FY 2016 was around Rs 1.54 billion, and it is expected to grow at a CAGR of 196% during FY 2017 to FY 2022 and reach Rs 1512 billion by the end of FY 2022.

It is in this perspective that industry body ASSOCHAM and RNCOS, a business consultancy services firm, has come up with a report – M-Wallet: Scenario Post Demonetisation – that dwells on the industry outlook, drivers, roadblocks, trends, regulatory landscape, etc. As m-wallet gains traction, it is important to know the roadblocks that need to be addressed and the trends.

Roadblocks

Consumer Mindset

Mobile wallet is a recent phenomenon, not many people are aware about this service in India. The consumer’s mindset is the biggest factor that hinders the growth of the Indian m-wallet market, as people are sceptical about safety and security issues, as in the case of Internet banking. Users worry that their devices could be hacked or attacked by some kind of viruses. Also, often people complain that their money has been debited but the transaction got declined while transacting via mobile, and to avoid such problems they keep away from using mobile wallet related services.

Privacy is another issue. For all kinds of monetary transactions or other services one needs to disclose the identity; and hackers try to hack into the security or wireless transmission and steal the identity details and other social and financial information of the customer.

Competition from Debit/Credit Cards

Mobile wallets still face tough competition from debit or credit cards in India, as these cards have several advantages over m-wallets. M-wallets allow limited amount of money transfers from wallet to wallet or wallet to bank, which is not the case while transacting through debit or credit cards. Therefore, these wallets are not suitable for high value purchases. Also, only a limited amount can be transacted in a single transaction while using m-wallets.

[For example: Oxigen allows a maximum of Rs 10,000 to be transacted in a month or Rs 10,000 in single transaction, whereas Paytm’s daily upper limit for wallet to bank account transactions is Rs 5,000 and the monthly limit is Rs 25,000.]

M-wallet apps are not made for all types of mobile phones; some m-wallets are compatible only with one or two operating systems.

[For example: HDFC Zappy m-wallet does not work with Windows or iOS operating systems, it is meant only for Android users. Therefore, a Windows user will not be able to download HDFC Zappy on phone. The services offered by Oxigen are compatible with the App Store (for iOS) and Google Play (for Android), but not Windows.]

Trends

Introduction of m-wallets for basic phone users

M-wallet was supposed to be used by smartphone users earlier, but now the m-wallet players are launching an application exclusively for basic phone users. This is to service people living in rural areas or who do not have smart phones.

[For instance: State Bank of India has SBI Buddy in the market, an m-wallet for smartphone users. The bank will soon launch another wallet, SBI Batua, compatible with Java-enabled mobile phones, and it will have characteristics of Buddy but will be targeted at customers who use feature phones. Batua can be used to make utility payments, transfer funds and buy air tickets, among others things; it will be available in 13 languages. It also has features like reminders to settle dues, recharge and pay bills instantly.]

Technology companies entering m-wallet business

After banks and telecom companies, software service companies are ready to compete in the m-wallet market by introducing advanced technology platforms to create an environment wherein digital payments can be accepted, irrespective of form factors or service providers in an inter-operable and device-agnostic manner.

[For instance: Tech Mahindra launched in December 2015 India’s first NFC based digital payment ecosystem MoboMoney, a pre-paid wallet issued in the form of an NFC tag. The technology allows radio communication between two NFC enabled devices, and the tag is a small sticker type chip that works on NFC technology. This tag is linked to the MoboMoney account, which allows consumers to load their wallet by paying cash at its 1,000+ retail network, helping convert cash into e-cash. The money when loaded into customers’ digital wallets can then be used to tap and pay for over the counter payments, recharges, make bill payments, as well as pay online.]

Launch of Unified Payments Interface (UPI)

National Payment Corporation of India (NPCI) has launched Unified Payments Interface (UPI), wherein customers do not have to give their personal credentials like account details and security pins. The interface allows customers to make payments through a single identifier, like Aadhaar number or virtual address. UPI is an infrastructure on top of which end-user apps can build and implement the features offered by UPI. According to RBI, UPI envisages a payments architecture that is directly linked to achieving the goals of universal electronic payments, a less-cash society, and financial inclusion.

UPI enables a customer to make payments using his mobile phone as the primary device for transactions including person-to-person, person-to-merchant, and merchant-to-person with the ability to pay someone as well as collect cash. It also allows multiple recurring payments similar to electronic cash payments (utilities, school fees, subscriptions, etc) with a one-time secure authentication and rule based access. UPI has huge potential; if exhausted fully, it will further promote the concept of mobile payments and also facilitate digital banking.

Entry of new players

The Indian m-wallet market is extremely competitive and fragmented. Plenty of companies from different sectors having large consumer bases are entering the market, and they are expected to capture larger market share in the near future.

[Example: After the acquisition of Freecharge by Snapdeal, Flipkart launched its semi closed m-wallet Flipkart Money in March 2016 for customers on mobile operating system Android. This step by an e-commerce player is expected to increase the proportion of cashless transactions, and cut operational costs involved with cash on delivery payments.

Other new players which entered the market in 2016 include Lime by Axis Bank, a new mobile app which integrates a mobile wallet, shopping, payments and banking. State run telecom operator BSNL has partnered with Pyro, a telecom, financial and analytics company, along with Andhra Bank and Visa to announce SpeedPay, a semi closed open prepaid instrument. Additionally, RBL Bank tied up with TranServ, a digital payments company, and iKaaz, a Bengaluru-based NFC payments firm, partnered with DCB Bank to launch co-branded wallets too. Furthermore, Citibank India and MasterCard launched a global digital wallet called Citi MasterPass with 2,50,000 e-commerce merchants.

M-wallet enables short term credit

The mobile wallet that has been serving needs for instant cash in an electronic form for sundry transactions, will soon offer instant loan facility for short term to its customers. This micro-credit programme enables users to subscribe for small loans, and m-wallet companies get interest in return. An eligible user will get the loan instantly credited to the wallet. Users will be allowed to take loans in excess of Rs 5,000.

The mobile wallet companies are tying up with commercial banks and Non-Banking Finance Companies (NBFCs) to roll out this service, which will analyse the history of the users before crediting the loan. Mobile wallet companies on their own cannot give loans. Several companies have started their pilot projects already, and Mobikwik is one of them.

It is expected that the interest rate and duration of the loan will be competitive, and will depend on the user profile and history — between 15 and 30 days. The date of repayment will be intimated to customers, so that minimum wallet balance required for auto-debit is maintained.

Also, one of the oldest players in the market, Citrus Pay is planning to launch a new solution Lazypay, to become an underwriter of transactions by charging consumers on a fortnightly basis for transacting with merchants. The consumers would be able to buy grocery, cinema tickets and food under this platform conveniently, and the settlements will be made by Citrus Pay to merchants immediately. This is almost like a postpaid bill which the customer experiences for his phone connection. However, this solution will be offered to customers with good credit scores, which Citrus Pay derives with the help of its analytics engine.

Increasing merchant tie-ups

Tie-ups between m-wallet companies and entities like restaurants, grocery stores and ticket booking websites are on the rise. Tie-ups enable companies to broaden their product portfolio, enhance their technical abilities, and enlarge their footprint. They are increasing their customer base by offering discounts and cash backs on purchase from their merchants’ site.

M-wallet enables banking services via social network

M-wallet companies are coming up with an idea of transferring funds via social media platforms like Facebook, Twitter, Google+, WhatsApp, etc. This new feature is rapidly being adopted by youngsters. They only have to enter the name of the person and the amount which is to be transferred, and the money automatically gets transferred in a very short span of time.

M-wallet companies send a 4 or 6 digit pin on the payer’s mobile number, and the amount gets transferred to the payee’s account when the payee enters his bank details in his wallet along with the 4-digit pin which the payer gets. This new feature has made banking services effortless for the payer as well as payee, as it saves payer’s time to enter payee’s bank details every time; and also payee is responsible for entering wrong account details. It is as safe as Internet banking, as it works on the principle of One Time Password security, which the payer gets and the payee has to ask for it before doing the transaction.

Pockets launched by ICICI Bank, and Ping launched by the Axis Bank in 2015 enable money transfers via social media; however Oxigen’s was the first m-wallet to provide this feature in the year 2014.